Highlights

DiGi.Com Bhd - Earnings Dragged by Higher Finance Cost

Date: 29/01/2021

Source  :  JF APEX
Stock  :  DIGI       Price Target  :  4.23      |      Price Call  :  HOLD
        Last Price  :  4.20      |      Upside/Downside  :  +0.03 (0.71%)
 


Result

  • Lower profit. Digi’s reported 4Q20 net profit declined 18% YoY to RM280m mainly due to higher finance costs attributed to finance lease liabilities under MFRS16 and fair value loss on interest rate swap.
  • Revenue impacted by Covid-19. Quarterly revenue declined 7% YoY to RM1.56b due to lower non-internet revenue as Covid-19 impacted roaming, voice and interconnect revenue.
  • Challenging QoQ. Net profit dropped 13% QoQ due to higher finance cost while revenue declined 1% QoQ following lower contribution from Prepaid (-2% QoQ) and Postpaid (-1% QoQ).
  • Flattish EBITDA margin - Digi posted a lower EBITDA margin of 49% vs 50% in 3Q20 as despite lower costs as revenue declined.
  • Earnings below expectation. 4Q20 net profit is below our expectation after accounting for 88% of our full year estimates but revenue is within expectation.
  • Postpaid segment. Postpaid subscribers grew 22k QoQ to 3.04m while Postpaid ARPU was slightly lower at RM66 from RM67 in 3Q20 due to lower roaming and interconnect revenue.
  • Prepaid segment. Prepaid subscribers decreased 260k QoQ to 7.4m due to losses in the migrant segment. Prepaid ARPU was slightly lower at RM32 vs RM33 in 3Q20.
  • Higher gearing. Operating cashflow was lower at RM491m vs RM652m in 4Q20 while net debt to EBITDA was higher at 1.7x vs 1.5x in 3Q20 as financial lease rose 26% YoY to RM2.6b.
  • Dividend declared. The Group declared its 4th interim dividend of 3.6 sen/share, taking FY20 dividends to 15.6 sen which fell short of our full year dividend forecast of 16 sen.
  • Guidance for 2021. The management guide the following: a) low single digit decline in service revenue, b) medium single digit decline in EBITDA, and c) capex-to revenue ratio of 14%-15%

Comment

  • We expect Digi to remain resilient with continued discipline in cost efficiency and strong cashflow amid challenges posed by Covid-19.
  • Major risks include further impact from MCO 2.0, market competition from other telcos, 5G capex investment draining cash and lower-than-expected profit margin.

Earnings Outlook/ Revision

  • We are lowering our earnings and revenue forecast for FY21F by 4% and 2% respectively as 4Q20 earnings came below expectation.

Valuation/Recommendation

  • Downgrade to HOLD from BUY with a lower target price of RM4.23 (previously RM4.75) following lower dividend expectations. Our target price is derived based on DCF valuation with a WACC of 5.5% and a long-term growth rate of 2%. Our target price also implies a 24.4x FY21F PE based on EPS of 16 sen.

Source: JF Apex Securities Research - 29 Jan 2021

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Labels: DIGI

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